Tax Write-Offs on Home Lease-Purchases

Tax write-offs may be possible, depending on how home lease-purchases are executed.

Tax write-offs may be possible, depending on how home lease-purchases are executed.

Home lease-purchases are often called "rent-to-own" or "lease-to-own" transactions or agreements. The buyer acts as a tenant and makes monthly payments to the owner for an agreed-upon time -- often three years -- with the option to purchase the property at the end of the term. Usually, the buyer's installments go toward the overall purchase price. Buyers utilize this type of agreement when rebuilding their credit or attempting to obtain a mortgage loan. In this type of transaction there may be tax write-offs for both the seller and the buyer.

Homeowner Tax Write-Offs

Homeowners, even in home lease-purchase agreements, may claim the mortgage interest deduction, provided there is a mortgage on the property. Information about how much interest has been paid over the course of the year may be found on Form 1098, which is mailed to the homeowner from the lender. Additional write-offs for the homeowner may include property tax payments, home improvement deductions and energy efficiency deductions. Capital gains tax exclusions or reductions may apply when the sale of the property is complete.

Tenant Tax Write-Offs

Some states provide rental payment credits to renters as a way to decrease their residents' tax liabilities. If a buyer lives in one of these states, he may be able to report his rent for credits on his state taxes. However, if the buyer has acquired ownership through the transfer of a title or deed or has acquired equity in the property, the rental credits are unavailable. Equity in the property may be acquired a few ways. A buyer may have invested significant amounts of money to improve the property, which creates equity. Or, if the amount of rent and option price paid combined approximate the fair market value of the property, the buyer has acquired equity, according to Donald J. Valachi, who outlined details about equity and ownership in "Commercial Investment Real Estate Magazine." Valachi said that equity may also earned when rent payments exceed the actual fair market rental value of the home.

Transaction as a Sale

If the home-lease transaction is treated as a sale by both parties, ownership will transfer when the agreement is executed, according to Valachi, as long as the contract is written as such. Some contracts may be amended to expedite the timing of the option payment, which can change the terms of the home-lease transaction so that ownership is transferred. The individual claiming ownership has the tax write-off privileges.


A great deal of communication is required between the buyer and the owner to determine which write-offs may be taken. Some owners allow buyers to take over ownership tax privileges when they take possession of a home with the intent to purchase it. However, other owners are extremely unlikely to surrender their tax benefits. If communication between the buyer and owner is strained or non-existent, clarification should be sought using the contract or agreement used to establish the home-lease transaction. If further confusion ensues, a tax attorney or other tax professional may be able to help clear up questions by both owners and buyers.

About the Author

Vicki Wright, writing and editing professionally since 1996, has extensive business management, marketing and media experience. Wright has a Bachelor of Science in socio-poltical communication from Missouri State University and became certified as a leadership facilitator from the Kansas Leadership Center in 2010.

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